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Financial Aid: Beware of Scholarship Scams

Oct 9, 2007
With fall approaching and many students (and their parents) worrying about college tuition, it's time for the annual public service announcement on scholarship scams.

In short, beware.

A recent article on MSNBC.com detailed the woes of several college hopefuls who had fallen victim to one particular scholarship scam. This scam involved a company - College Money Matters - which promised to help students obtain money for college in exchange for a large fee - about $1,000. But promises weren't kept, and students who tried to obtain refunds were often met with resistance and even harassment.

College Money Matters is just one example of scholarship-service scams out there. In fact, scholarship-service scams have become so egregious as to attract the attention of the Better Business Bureau. To help consumers avoid potential pitfalls and make educated decisions about financial aid, the Better Business Bureau issued a statement in 2003 entitled "Scholarship Services: Are They All Scams?" in which they warned students to be suspicious if a scholarship service makes one or more of the following claims:

"The scholarship is guaranteed or your money back." In reality no one can guarantee that they will get you a grant or scholarship. And the refund guarantees that are offered usually have so many conditions or strings attached that it is almost impossible for consumers to get their money back.

"You can not get this information anywhere else." Actually, scholarship information is widely available in books, from libraries and financial aid offices and on the Internet, if you are willing to search for it.

"We will do all the work." In reality, only parents and students can determine and provide the financial information needed to complete the forms. And to apply for scholarships, students must complete the application themselves.

"You have been selected by a national foundation to receive a scholarship." If you have not entered a competition sponsored by the foundation, this claim is highly unlikely.

"May I have your credit card or back account number to hold this scholarship?" This is never a requirement for a legitimate scholarship offer.

"The scholarship will cost some money." Legitimate scholarship offers never require payment of any kind. Free money is free money, unless it is a loan. But if it is not a loan, any fees that may be charged, such as the origination and guarantee fees, are taken out of the disbursement check.

While scholarship scams are relatively new, it should be noted that they share the usual characteristics of old-fashioned confidence schemes: (1) unfounded guarantees; (2) claims to privileged information; (3) promises of a "sure thing" - no risk; and finally, the hallmark of all scams, (4) all money is paid up front. The last of these traits is typically the litmus test of legitimacy: if a representative of any service wants money up front (despite their assurances and guarantees), then beware. Chances are you are being presented with a scam.

College is expensive, and financing a college education can be frustrating even without the shysters. That being said, money is available - there are thousands of legitimate scholarships out there. But scholarships belong in the category of things that, ultimately, prospective students have to do alone.

The important thing to remember is that scholarships are selective by their very nature, and part of that selection process involves weeding-out large applicant pools to find a handful of select individuals. More often than not, the recipients of these awards are careful and persistent seekers who approach financial aid as a serious and time-consuming process and not those swayed by the flattery and false promises of scholarship scams.
About the Author
Benjamin Welch enjoys helping students find information on financial aid and scholarships.
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